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2008 (7) TMI 385 - AT - CustomsValuation - Value of Software include ability in the value of software - The allegation of the Revenue is that the value of the impugned goods have been split up into hardware and software portion with an intention to evade payment of Customs duty held that - The software needed for the functioning of the telephone is already embedded in it. When the telephone is purchased the price includes the value of the software also. It is not that one has to purchase hardware and software separately and then load the software into the telephone. Even at the foreign suppliers end the software needed for the telephone is already embedded. It has been stated that the CD-Roms containing software are essential and are needed for upgradation. This is not a very convincing reason for saying that the value of the telephone has to be split up at 70% for hardware and 30% software. value of software to be included in the value of telephones
Issues Involved:
1. Classification of Fixed Wireless Telephone. 2. Valuation of imports, specifically the inclusion of software value in the assessable value. 3. Imposition of penalties on various appellants. Issue-Wise Detailed Analysis: 1. Classification of Fixed Wireless Telephone: The classification issue was decided in favor of the appellants. The tribunal agreed with the appellants' classification of the Fixed Wireless Telephone (FWT) imported by them, thus resolving this issue without further dispute. 2. Valuation of Imports: The core dispute revolved around the valuation of the FWTs. The appellants contended that the value of the software contained in the CD-ROMs, imported along with the FWTs, should be excluded from the assessable value. They argued that the software was necessary for future upgrades and not integral to the current functionality of the phones. The appellants split the total value of the FWTs into hardware and software components, with the software portion being exempt from customs duty. The Revenue challenged this valuation, asserting that the software necessary for the functioning of the phones was already embedded in the hardware. They argued that the appellants, in collusion with suppliers, artificially split the value to evade customs duty. Detailed investigations and expert opinions supported the Revenue's stance that the entire value of the FWTs should be assessed for customs duty. The tribunal found substantial evidence supporting the Revenue's position, including incriminating documents and expert testimonies. The tribunal upheld the Original Authority's conclusion that the entire value of the FWTs, including the software, should be taken for customs duty assessment. The tribunal noted that the suppliers typically did not split the value of the phones and that the software was already embedded in the hardware. The tribunal also referenced a similar case involving Indian Telephone Industries Ltd., where the splitting of value was deemed arbitrary and intended to evade customs duty. 3. Imposition of Penalties: The tribunal addressed the penalties imposed on various appellants. The penalties under Section 114A of the Customs Act, 1962, were upheld for M/s. Bhagyanagar Metals Ltd. and M/s. Surana Telecom Ltd., given the evidence of intentional evasion of customs duty. The differential duty and interest demands under Section 28AB of the Customs Act were also upheld. However, the tribunal found no justification for imposing penalties on the foreign suppliers, M/s. LG Electronics and Huawei Technologies, as the splitting of value was done at the behest of the importers. Consequently, the penalties on these suppliers were set aside. The penalties on the individual appellants, Shri Narender Surana and Shri S. Balasubramanian, were modified. The penalties were reduced as follows: - For Order-in-Original No. 17/2006: - Penalty on Shri Narender Surana reduced from Rs. 20,00,000/- to Rs. 5,00,000/-. - Penalty on Shri Balasubramanian reduced from Rs. 2,00,000/- to Rs. 50,000/-. - For Order-in-Original No. 19/2006: - Penalty on Shri Narender Surana reduced from Rs. 20,00,000/- to Rs. 5,00,000/-. - Penalty on Shri Balasubramanian reduced from Rs. 2,00,000/- to Rs. 50,000/-. Summing Up: 1. Appeals C/573/2006 (M/s. Bhagyanagar Metals Ltd.) and C/487/2006 (M/s. Surana Telecom Ltd.) were rejected. 2. Appeals C/574/2006 (Shri Narender Surana, MD of BML), C/575/2006 (Shri S. Balasubramanian, VP (Mktg), BML), C/488/2006 (Shri Balasubramanian, VP (Mktg), STL), and C/489/2006 (Shri Narender Surana, MD of STL) were modified as mentioned above. 3. Appeals C/491/2006 and C/556/2006 (M/s. LG Electronics Inc.) and C/473/2006 (M/s. Huawei Technologies Co. Ltd.) were allowed. Pronounced in open court on 9-7-2008.
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